Wednesday, October 2, 2013

US shutdown and its economic crisis

What
is the reason for the present economic crisis of shutdown in United States of
America?

In USA both the medical
expenditure and medical insurance is very expensive.Due to high cost, a large number of poor and
middle class citizens of USA live without any medical insurance.In the absence of medical insurance, such
people find it extremely difficult to foot their medical bill for their various
diseases.In order to mitigate this
situation and to cover medical insurance to all people of America, the Democratic
president of USA, Barrack Obama introduced
a bill in 2009 that culminated into “The Patient
Protection and Affordable CareAct,
2010”.This was signed into law by President Obama on March 23, 2010
and came to be better known as Obamacare.Its main
purpose is to address both the affordability and quality of healthcare, as well
as to curb the growth in healthcare spending in the USA.

Opposition by the
Republicans:

Obamacare is well received by the
People of America and has earned a good name to the Democratic President
Obama.This is viewed as a threat by the
Republicans for the future elections.Hence, the Republicans opposed the bill in the past.The reasons put forth by the Republicans
before the people at large is that if a huge outlay is allocated towards
Obamacare, various other schemes would get adversely affected. Due to Obamacare, the Forbes has also reported an
increase in national health spending to the range of to $7,450 per family of 4
between 2014 and 2022.

US Congress and
Indian Parliament:

The United States
Congress is the legislative branch of the federal government and consists
of two houses: the lower house known as the House of Representatives (Lok
Sabha in India) and the upper house known as the Senate (Rajya Sabha in
India).Democrats currently have a
majority in the Senate and Republicans control the House.

A Bill (inclusive of Money Bill)
can be introduced in either houses of Congress in USA.Bills originating in the House of
Representatives begin with "HR" and bills originating from the Senate
begin with "S."Unlike India,
where a Money Bill (Budget is a Money bill) can be introduced only in the Lok
Sabha, in the US the Money / Budget bill can be even introduced in the Senate.

In India, once the Lok Sabha
passes a Money Bill, it is forwarded to the Rajya Sabha for recommendations.
The Rajya Sabha must return the Bill in not more than 14 days with its
recommendations. If the Rajya Sabha
fails to do so, the Bill is considered to have been passed by both Houses.The Lok Sabha has the authority to accept or
reject any or all the recommendations of the Rajya Sabha. If the
recommendation/s of the Rajya Sabha is/are accepted, the Bill is said to have
been passed by both Houses of Parliament after being amended by the Rajya Sabha
and then accepted by the Lok Sabha.

The financial year commences in
India from April 1 whereas in America it starts from October 1.The day to day expenditure for Government
activities inclusive of salary to the Government employees needs to be
allocated before September 30.

The Budget bill introduced in the
Senate passed smoothly since the Democrats have the majority in the Senate. The
Republicans who rule the House have rejected the budget and have demanded
scrapping of any outlay towards Obamacare.This has lead to a crisis and the budget for the new financial year
remains in abeyance in the US.The
authority of Lok Sabha in India on Money Bill does not foresee any such situation.

USA Government
shutdown as budget deadline passes:

In
the absence of any budgetary provision, the salary to the US (Federal)
Government employees and day to day expenditure for Government offices stands
fractured in the United States. Obama
has blamed the House of Representatives for the stalemate and said he would
"keep working to get Congress to reopen the government [and] restart vital
services". Obama in a letter written to federal government employees has
stated that "This shutdown was completely preventable. It should not have
happened."

National parks, museums,
exhibitions, home loan, etc. are the Departments which have become the initial
casualties.Around ten lakh employees of
these Departments have been alerted to proceed on leave without salary.Defence, Passport, Postal, Airport, Courts
and Internal Defence, being essential in nature, are presently
functioning.If the crisis continues, the
essential services may also be hit.

Resolving the
Stalemate:

At a time when America is recovering
from the economic crisis, the present budgetary stalemate has caused some discomfiture.This is also adversely influencing the US
stocks / share markets.A similar crisis
did happen seventeen years back during Clinton Administration. Bill Clinton stood firmly and after 21 days
the opposition agreed to budge to end the crisis.Obama is already in the process of
discussions with the opposition.It is
not known how long the present impasse may continue.

Impact on India:

According to Economic Affairs
Secretary to the Government of India Arvind Mayaram, the US shutdown is
unlikely to have any major impact on the Indian economy. The Indian Express
reports that “Though the finance ministry and the stock markets may have
largely shrugged off the shutdown of the US government, it could still send a
tremor down the world economy as the impasse could lead to a debt default by
the US later this month. For India, it raises the prospect of a hit on exports
as well renewed volatility in the rupee. Though analysts believe that at
present it would have limited impact in sectors such as IT or tourism that are
dependent on Visa clearances, the bigger concern looming is October 17 when the
US government would hit its debt ceiling of $16.7 trillion. If by then the
Congress is unable to strike a deal, the US would face a default on treasury
bonds and also slash its spending, that would immediately impact the global
economy and could destabilize efforts Government of India and RBI have taken in
recent months to support the rupee.Let
us wait and see!